ICMA.

Pakistan
Extra Reading Time: Writing Time: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) 15 Minutes 02 Hours 30 Minutes

FALL 2013 (FEBRUARY 2014) EXAMINATIONS Monday, the 24th February 2014 MANAGEMENT ACCOUNTING (AF-401)
SEMESTER-4 Maximum Marks: 80 Roll No.:

Attempt all questions. Answers must be neat, relevant and brief. In marking the question paper, the examiners take into account clarity of exposition, logic of arguments, effective presentation, language and use of clear diagram/ chart, where appropriate. Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper. Use of non-programmable scientific calculators of any model is allowed. DO NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script. Question No.1 Multiple Choice Question printed separately, is an integral part of this question paper. Question Paper must be returned to invigilator before leaving the examination hall.

Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:45 a.m. or 2:45 p.m. [PST] as the case may be).

Q. 2

(a) (b)

What is meant by capital expenditure? How does it differ from a revenue expenditure? Al-Asar International manufactures and sales non-carbolic drinks. Demand for product is increasing approximately 10% per annum, but vary based on climatic conditions in different seasons of year. Quarterly sales data for last two years is as under: Year 2012 Quarter Q-1 Q-2 Q-3 Q-4 Q-1 Q-2 Q-3 Q-4 Volume of Sales (Million Bottles) 450 750 825 625 500 825 900 675

Marks 03

2013

Required: You have been working as Financial Controller in Al-Asar International and asked by managing partner to calculate the following: (i) Quarter-wise trend (T) for 2012-13 (Q-3, Q-4, Q-1 and Q-2). 07 02 (ii) Seasonal variances (SV) for above quarters using Proportional (Multiplicative) Model. Q. 3 Navina & Nagina Co., manufactures Jeans Pants, "High-bottom". The entire product is sold as soon as it is produced. There are no opening and closing inventories and work-in-process is negligible. The standard contribution margin per unit for the product is as follows: Rupees Sales price 2,000 Direct materials: Fabric (3 sq. meter @ Rs. 200 per sq.m) 600 Accessories (4 sets @ Rs. 50 per set) 200 800 Direct labour (1 hour @ Rs. 360 per hour) 360 Variable production (1 hour @ Rs. 40/hour) 40 1,200 Contribution margin 800 Budgeted volume (units/ month) 125,000 1 of 4 PTO

MA-Feb.2014

Marks Actual results for January 2014: Sales (118,750 units) Direct materials purchased and used: Fabric (360,000 Sq. Meter) Accessories (500,000 Set) Direct labour* (120,000 hours) Variable production overhead Contribution Margin *Include idle time (3,000 hours) Rs. 000 240,000 75,000 30,000

105,000 45,000 6,000

156,000 84,000

Required: Complete the operating statement for January 2014 shown below. You should insert each cost variance into the correct box according to indicator of adverse or favourable: Operating Statement for January 2014 Rs. 000 Favourable Budgeted contribution Variances: (a) Sales volume contribution (b) (c) (d) (e) (f) Sales price Direct material price Direct material usage Direct labour rate Direct labour efficiency Adverse 100,000

12

(g) Idle time (h) Variable production overhead expenditure (i) Variable production overhead efficiency Total Actual contribution 84,000

Q. 4

Your company is trying to decide whether to outsource its packing operations or continue to do it in-house. The current packing machine would not do anymore; it either has to be sold or thoroughly fixed up. Following two alternatives are available for packing operations: ! Annual in-house packing (excluding depreciation) costs are estimated to be Rs.40 million. ! Outsourcing the packing will cost Rs.50 million per year.

Other details about the two alternatives are as under: ! The company's tax rate is 34%. ! The tax written down value (WDV) of the machine is Rs.30 million, but its market value is Rs.10 million only. Doing the packing in-house requires an investment of Rs.20 million to fix up the existing packing machine. For tax purposes this amount will be added in WDV and depreciated annually at the rate of 10% of WDV. Given this investment, the machine will be good for another five years but have no salvage value after 5 years. No tax depreciation will be allowed in year-5 and WDV at the end of year-4 will be allowed as tax loss on disposal. The relevant discount rate is 12%. Required: (a) Calculate Net Present Value (NPV) for the following options: (i) In-house packing. (ii) Outsourcing. (b) (i) Advise better option and briefly state reasons thereof. (ii) Briefly state other factors that should be considered while opting best option.
MA-Feb.2014

14 04 01 01

2 of 4

Marks Q. 5 (a) Dawnparler (Private) Limited manufactures three products rusk, bread and biscuits. Owing to the perishable nature of these products, no finished goods stocks are held. Information relating to these products is as follows: Rusk Bread Biscuit Quantity of material used per packet manufactured Meda (Kg.) 3 2 4 Suji (Kg.) 8 3 8 Maximum sales demand (packets) 120 120 120 Contribution per packet sold (Rs.) 24 12 16 The company that supplies the two raw materials that are used in all three products has informed Dawnparler (Private) Limited that due to power load-shading, material supply will be limited to the following quantities in March 2014: Meda Suji 1,800 Kgs. 1,800 Kgs.

Supply Chain Manager informed that other source of supply cannot be arranged on such short notice. Required: (i) As Chief Financial Officer of the company, you are required to recommend a production mix that will maximise the profits of Dawnparler (Private) Limited for March 2014.

09

(ii) Dawnparler (Private) Limited has a valued customer to whom they wish to guarantee the supply of 90 packets of each product in March 2014. Would this customer demand ask you to alter your recommended production plan? If yes, recommend alternate production plan. (b) (i) Briefly explain Environmental Cost and Management Accounting.

03 03 05

(ii) What are the main elements of an environmental management system?

Q. 6

Moonlight Trading Limited (MTL) and Daylight Trading Limited (DTL) are doing business in same Industry. Extract from financial statements of two companies are tabulated below: Rs. in million MTL DTL As on June 30 2013 2012 2013 2012 Shareholders equity 10,000 10,000 10,000 10,000 Retained earnings 2,721 2,000 2,609 2,000 12,721 12,000 12,609 12,000 Long-term loan 9,000 9,000 1,000 1,000 Deferred liability 229 200 191 200 Current liability Running finance (RF) and overdrafts (OD) 1,000 1,000 9,000 9,000 Trade payable 1,200 1,000 1,200 800 Other current liability 850 1,800 1,000 2,000 3,050 3,800 11,200 11,800 25,000 25,000 25,000 25,000 Non-current assets Current assets: Inventories Trade receivables Other current assets: 20,000 1,100 1,000 2,900 5,000 25,000 3 of 4 20,000 900 800 3,300 5,000 25,000 20,000 800 900 3,300 5,000 25,000 20,000 1,000 1,100 2,900 5,000 25,000 PTO

MA-Feb.2014

Marks Additional Information:

!

Industry norms are: ! Industry Gross Profit ratio is 40% of sales. ! Earning before Interest and taxes (EBIT) is 30% of sales. Turnover of two companies were: ! For 2012: Rs. 10 billion ! For 2013: Rs. 11 billion Mark-up rate (per annum) of short term finance (overdraft and loan) were: During 2012 During 2013 Corporate tax rate is 35%. Calculate difference in net income of 2012 and 2013 for both MTL and DTL. Which company is in a riskier position? State your reasons. Calculate the following for MTL and DTL: (i) Current ratio for 2012 and 2013. 01 01 01 01 01 01 (ii) Quick ratio for 2012 and 2013. (iii) Receivable turnover period for 2013. (iv) Inventory turnover period for 2013. (v) Payable turnover period for 2013. (vi) Cash conversion cycle for 2013. THE END
PRESENT VALUE FACTORS CUMULATIVE PRESENT VALUE FACTORS
18% 0.847 0.718 0.609 0.516 0.437 0.370 0.314 0.266 0.225 0.191 19% 0.840 0.706 0.593 0.499 0.419 0.352 0.296 0.249 0.209 0.176 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 Year 1 2 3 4 5 6 7 8 9 10 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 11% 0.901 1.713 2.444 3.102 3.696 4.231 4.712 5.146 5.537 5.889 12% 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 13% 0.885 1.668 2.361 2.974 3.517 3.998 4.423 4.799 5.132 5.426 14% 0.877 1.647 2.322 2.914 3.433 3.889 4.288 4.639 4.946 5.216 15% 0.870 1.626 2.283 2.855 3.352 3.784 4.160 4.487 4.772 5.019 16% 0.862 1.605 2.246 2.798 3.274 3.685 4.039 4.344 4.607 4.833 17% 0.855 1.585 2.210 2.743 3.199 3.589 3.922 4.207 4.451 4.659 18% 0.847 1.566 2.174 2.690 3.127 3.498 3.812 4.078 4.303 4.494 19% 0.840 1.547 2.140 2.639 3.058 3.410 3.706 3.954 4.163 4.339 20% 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192

Long Term 12% 20%*

Short Term 10% 16%

*Will not apply on existing loans

!

Required: (a) (b) (c) 08 02

Year 1 2 3 4 5 6 7 8 9 10

10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386

11% 0.901 0.812 0.731 0.659 0.593 0.535 0.482 0.434 0.391 0.352

12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322

13% 0.885 0.783 0.693 0.613 0.543 0.480 0.425 0.376 0.333 0.295

14% 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270

15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247

16% 0.862 0.743 0.641 0.552 0.476 0.410 0.354 0.305 0.263 0.227

17% 0.855 0.731 0.624 0.534 0.456 0.390 0.333 0.285 0.243 0.208

.
MA-Feb.2014

4 of 4